Thiel: In NBA showdown, is expansion on table?

Chris Hansen and his Sacramento rivals for the Kings will pitch Wednesday in front of the NBA Board of Governors, who may finally decide — or not.

(Updated 10 p.m. with story on expansion)

Wednesday is showdown day in Dallas, when Chris Hansen for the first time addresses representatives of 29 NBA owners, while owners of the 30th team, the Sacramento Kings, convey to the same audience they will not sell the franchise to anyone but Hansen, who wants to move the team to Seattle for a record NBA price. Meanwhile, investors who want to keep the team in Sacramento already have an endorsement from some owners and the support of Commissioner David Stern to keep the Kings where they are.

Never has there been such a bewildering business scene in the NBA, or in modern American pro sports.

The Hansen group made a ridiculously good offerto move the team. Some in the NBA answered by saying that the league should not do unto Sacramento the deed done unto Seattle five years earlier — move a team with a long history of support in its market.

The irony is enough to bend iron.

If there is anything approaching conventional wisdom in this saga, it is that the full Board of Governors will, in keeping with NBA custom, accept the recommendation of the relocation committee to preserve the Kings in Sacramento, which would seemingly put an end to the Hansen purchase.

Except the NBA can’t force the Maloof family that owns the Kings to sell to the Sacramento group led by Silicon Valley billionaire Vivek Ranadive, particularly for a price that is less than than the offer Hansen enhanced by $75 million Friday. But Sacramento Mayor Kevin Johnson apparently thinks the Maloofs are posturing until the last moment.

Addressing reporters Tuesday at the Sacramento airport before leaving for Dallas, where he will help make the presentation, Johnson said the Maloofs have kept the door open to the counteroffer from the home town that eventually matched Hansen’s original offer of $341 million for 65 percent of the team.

“I think at the end of the day, if the Maloofs had not accepted a backup offer, we would be dead in the water,” he said. “And they allowed a backup offer to be submitted and that’s kept us in the ballgame . . . They could have slammed the door on us a long time ago.”

The come-from-behind bid from Sacramento has had changes in ownership participation and challenges in commitment. Johnson failed to answer directly whether the group has put 100 percent of its offer into escrow, as the Maloofs have insisted.

“They told us last week we need to have 50 percent in escrow (reported to have been completed) and now we are told we needed to have 100 percent in escrow,” he said. “You may as well make an assumption on your own.”

Meanwhile, as he left, a lawsuit challenged the most debated part of the group’s plan, a proposed $448 million arena downtown that includes a $258 million public subsidy.

A lawsuit charging Johnson and city manager John Shirey with fraud in undervaluing the city’s subsidy was filed in Sacramento Superior Court by two attorneys representing three residents who are part of a group called Sacramento Taxpayers Opposed to Pork. STOP is an organization that has called for a public vote on the arena deal via referendum that requires 20,000 signatures.

Claiming city officials “concealed or suppressed material facts” in a preliminary term sheet approved by the city council, the suit claims city assets committed to the deal are worth $338 million, not $258 million.

The lawsuit alleges that the public-private partnership with Ranadive’s group amounts to an illegal give-away of public funds.

The Sacramento Bee reported in interviews two weeks ago that city officials said deal critics are overstating some numbers, taking others out of context and failing to acknowledge the full spectrum of the deal, which they say will bring substantial taxes and other revenues to the city. Officials also said the term sheet was preliminary and a final document awaited securing the Kings.

The filing Tuesday is not expected to have an influence on the owners’ decision, but it probably will serve to underscore a point made by Hansen April 3 in a presentation to the relocation committee — the Sacramento arena plan is not nearly as far along as the Seattle arena plan and flawed to the point of vulnerability.

Besides the critical assessment of Sacramento’s arena plan and the additional purchase price increase, Hansen added to his offering on Saturday by proposing a relocation fee of $116 million to the NBA, or $4 million per owner, a huge uptick over the $30 million Clay Bennett paid the NBA to move the Sonics to Oklahoma City in 2008.

Hansen also is said to have arranged a backup plan with the Maloofs in the event relocation is denied. For $115 million, he would own 20 percent of the Kings while the cash-strapped Maloofs operated the club for another year, by which time the proposed arena deal would be more developed.

If the plan falters, the Maloofs would petition the league again to relocate to Seattle, presumably being cashed out by Hansen. The NBA retains the right to approve minority owners as well as majority owners.

However, in a report Wednesday night by San Francisco host radio host Tim Montemayor of KGO on his Twitter account, Hansen and partner Steve Ballmer were told that expansion for 2014-15 was a real possibility. But their continued alliance with the Maloofs was putting in serious jeopardy any chance to return the NBA to Seattle, and that the end-run with the minority partnership idea was a poor move.

…Continuing relationship with “that family” would substantially damage their efforts. They did not heed that warning until this week.

Montemayor did not claim to know the outcome of either the relocation vote or the sale vote, or whether both would be taken. But if the reporting is accurate, the expansion option, heretofore largely dismissed by NBA officially, has apparently arrived as a potential compromise outcome.

The relocation vote requires a majority of 16 owners, while approval of a sale must be 23 of 30.

Hansen has been adamant that the Kings deal was likely his best and only hope for a team. But his aggressive actions in allying with the Maloofs, while generating contempt among owners, may also have had the effect of getting the owners to commit to expansion.

YourThoughts

Tim

Although I was optimistic a few days ago, I’m not seeing this go our way. It’s amazing how close we are to a win/win scenario of expansion for us and the Kings for Sacramento if only the NBA would do the right thing (like you suggested). The official NBA line about this “not being about the money” should more than hasten the right decision to grant us expansion. But, that’s in a perfect world. The world of David Stern and Clay Bennett is rife with hypocrisy and double standards and I get a physiological reaction when I see their faces. I do love seeing Durant wearing his Sonics’ cap.

I have not watched an NBA game since the Sonics left, and if we’re not awarded expansion I’m truly done.

Tom G.

I’m crossing my fingers for an expansion olive branch tomorrow.

Hansen is a smart guy and Montemayor’s tweets made it sounds like that certain people in the NBA talked Hansen and Ballmer off the cliff this week.

And if that’s indeed the case, I have no doubt that ownership group will make the right choice for Seattle fans and sort this stuff out tomorrow.

Leon Russell

That seems like a fairly likely outcome — the Kings stay in Sacramento and Seattle gets an expansion team, as many people have predicted.
However, the year delay may cause some real problems for Hansen. His hedge fund is in trouble and any more quarters like his most recent quarter and Hansen’s wealth is going to start evaporating quickly. This may be a reason why Hansen seems so desperate to get an NBA team NOW — because he knows his investment house of cards can come crashing down at any moment, and certainly before the 2014-15 NBA season.

Evergreen

Really? His hedge fund is in trouble and its wealth is going to start evaporating quickly? His fund is largely anchored around Apple, Facebook, and Google. If you’re so confident about this I highly suggest you put all of your money into shorting these three – you’ll be a millionaire in no time.

Leon Russell

His hedge fund actually LOST something like 8% in just one quarter. If his investors pull out, which is likely if that continues, then his source of income evaporates. Any of those stocks you mention can lose a large percentage in a short period of time, particularly if they are currently way over valued.

There are people who think the stock market is due for a big correction, so if Hansen’s money is mostly in the stock market he could lose a lot of it. Who knows where Hansen’s personal wealth is invested. Apparently he likes to short stocks of companies he thinks are going to tank, and if he has a lot of his money in things like that, he could take a very big hit in a short period of time.

jimc

my thought as well. anyone shorting in the last year may be in a bad position. I made 30% and I’ll take it to the bank. If he shorted telsa, ouch.

Evergreen

There are a lot of hypotheticals in your argument that lead you to the conclusion that Hansen’s business is an ‘investment house of cards’.

* ‘Hansen lost 8% in one quarter’ – that’s one data point in time, it has no bearing whatsoever that he will continue to lose money each quarter

* ‘Stocks can lose a large percentage in a short period of time’ – they can also gain a large percentage in a short period of time. Hansen’s portfolio is tech focused, but is diversified enough to reduce risk.

* ‘There are people who think the stock market is due for a big correction’ – there are others who think the market is not being irrationally exuberant and it will keep growing as the economy keeps recovering.

* ‘Most of Hansen’s money is in the stock market’ – his money is not just in the stock market, it’s actually diversified into real estate (eg. a stadium sized parcel in SoDo)

If you want to look at a real house of cards you should look at Sacramento’s fiscal future. The city is just getting by with its current finances, but there are dark clouds on their horizon even without the extra stadium costs.

“City Manager John Shirey told the City Council on Tuesday night that the city is facing its own “fiscal cliff” in six years, when an increase in the sales tax rate expires and the city’s required contribution to the state pension fund are expected to spike by as much as $17 million.

What’s more, Shirey said the city faces an unfunded liability in retiree medical costs of $440 million, a number that is increasing by the day.

The city has already addressed cumulative deficits of more than $240 million over the past seven years, said Leyne Milstein, city finance director.

Those deficits are projected to continue, as the city grapples with increasing employee costs and modest increases in key revenue streams such as property and sales tax.

“For the first time in many years, we’re actually showing revenue growth,” Shirey said. “The bad news is that our growth is a lot slower and a lot less than our neighbors.”

Leon Russell

One other possible outcome is that the NBA just put off a decision for several more months, making it impossible for the Kings to move to Seattle for the 2013-14 season. This would make a lot of sense, also. It would give more time to see if the Sacramento arena and ownership situation is really solid. It would put more pressure on the Maloofs to sell to Ranadive, or else lose a ton of money again playing in Sacramento with nobody attending games. And it would allow more time to see if Hansen’s hedge fund is genuinely in trouble, in which case, Hansen might be forced to just go away, in part because the Seattle arena deal depends on Hansen retaining a minimum personal worth of something like $300 million. If Hansen has most of his money in his hedge fund, and that hedge fund collapses, game over.

Don Fowler

You are making (incorrectly) that Hansen’s money is the driving force behind this deal. Steve Balmer and the Nordstrom brothers are the money, Hansen is the face ( also has a crap ton of money, but Balmer + Nordstrom brothers = more money than rest of NBA owners COMBINED)
Even in the unlikely event that Hansen goes broke, the money Balmer and the Nordstroms have is still there

Don Fowler

You are making *assumptions* (incorrectly) ^^^***

Leon Russell

Not likely. Paul Allen has almost as much money as Ballmer. The New Jersey Nets are owned by Russian billionaire Mikhail Prokhorov, who is worth about $13 billion.

How much do you think the Nordstroms are worth? They each own about 2 million shares of Nordstrom stock which is currently selling for about $60, making them each worth around $120 million in Nordstrom stock. Do they have a lot of other assets? I can’t find their net worth, so I suspect they are not billionaires.

“However, in a report Wednesday night by San Francisco host radio host Tim Montemayor” should’ve been Tuesday. I’m optimistic for Supes, and at least expansion. How can they continue to sell Sonics merchandise to us, but not give us the action?

Zen Moment

The one thing that bothered me from the beginning of this Kings ordeal was Hansen having to align with the Brothers Maloof. From the way they undermined nearly every attempt to save the NBA in Sactown, while jerking around the fans, to blowing the family fortune — they just seemed like a bunch of rotten apples who might bring down Hansen just by association. I hope it isn’t to late for Hansen and Balmer to extricate themselves from their clutching talons.

jafabian

Does the NBA realize just how hypocritical their statement is when they state that they don’t want to relocate the Kings due to their long history in that city? Are they even aware that the Sonics were in Seattle twice as long? I’m tired of that inane logic.

It seems to me that the public there is going down the same path that Seattle voters which the NBA resents. Does the NBA really want to risk investing in a city going in that direction when Hansen has addressed those concerns and has an established ticket waitlist? Hansen also has the support of Mayor McGinn so getting events in place before McGinn leaves office in case he isn’t re-elected would be wise as well. However the NBA is notorious at looking at the here and now and not down the road. I can still see them denying Hansen and then being shocked at the problems that they’re having in Sacramento later on.

Personally, I’d like to see the Kings come here. They have a solid roster and despite the possibility of Phil Jackson or Larry Bird joining the (possible) organization I wouldn’t mind seeing two time Exec Of The Year Geoff Petrie (former Blazer) staying on with a larger budget to work with than what he’s had the past five years. I’d love to see what Nate McMillan could do with that roster. Expansion only means the usual five year plan just to get to the playoffs. And that’s a maybe.

Thinking the NBA saying Hansen’s back up plan with the Maloofs was a bad idea is the NBA posturing, trying to get Hansen to loosen his stranglehold on the advantage he has. The NBA gave him no choice with all the back door deals they’ve been doing behind Hansen’s back. Wouldn’t surprise me if the NBA extends this so-called deadline again.

David

Nba will not grant expansion. These are all lies. It’s so transparent. A close source just happens to leak juicy backroom details. No way. If Hansen backs down and hopes for expansion year, we’ll get screwed again. The Nba can’t be taken for face value. I hope Hansen doesn’t fall for the lies.

jafabian

They won’t grant it now but will in a few years. They would need to explore what market they’d want and get an ownership group together for it. That’s why ultimately they’ll make Hansen wait it out and keep the Kings in Sacramento. It’s up to Hansen if he wants to accept that. I don’t think he should.
People rip on the Maloofs but IMO it’s the NBA that’s the bad guy here. The poor economics of the NBA put the Maloofs in the position they’re in. If you are having problems as an owner and your name isn’t Reinsdorf, Jordan, Arison, Simon or (ick) Bennett you are replaceable. Sterno will slap together an ownership group that can take your place.

Matt712

This is starting to sound like the show Survivor. We’ve got people pulling Hansen/Ballmer aside and telling them, “Hey, don’t consort with those horrible Maloofs. If you do, you’re gonna wreck any chance you have at surviving (getting a team).”
When, in actuality, the strength of Hansen’s alliance with the Maloofs may be his strongest card, because the the NBA (and Sac) find the Maloofs so contemptable, that the only way to put an end to this nightmare is by getting rid of them. Meanwhile, the Maloofs are basically saying the only way they go away is if Seattle gets a team. Are they bluffing? Will the NBA call it?? ….Find out on the next episode of Survivor!

Stephen

Haha! I like it!

Glenn

It’s Stern. It’s always been Stern. He brought the HBN group to the Maloofs, then when a deal was struck, blackmailed Sacramento to get a publicly subsidized arena. He used HBN, then has put out a narrative that HBN were bullies who tried to circumvent the system. Montemayor’s sources are Stern’s lackeys.

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